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Spotlight: Global Living

Founded in the UK in 1855, Savills is one of the world's leading property agents. Our experience and expertise spans the globe, with 600 offices across the Americas, Europe, Asia Pacific, Africa and the Middle East.

At Savills, our most valuable resource is our people. We are known for our positive, entrepreneurial culture, and for attracting some of the most innovative, dedicated and knowledgeable people in the business.

The US was the stand-out market in 2016 with $9.8bn total investment. Cross border activity accounted for 39% of total investment here, up from 21% in 2016, and just 1% in 2015. But the biggest deal was domestic: Harrison Street's buy-out of the Campus Crest REIT for a record $1.9bn. Second largest was the Scion Group’s purchase of the InvProperties University House portfolio for $1.4bn, in a venture with Canada’s CPP and Singapore’s GIC.

UK volumes fell back slightly from a high in 2015, a year that saw several large portfolios trade (most notably CPPIB’s purchase of the Liberty Living Portfolio for £1.1bn), but remained strong in the wake of the Brexit vote. Across the rest of Western Europe, investment volumes were up an average 26% in the year to Q2 2017. At a country level, Savills data showed volumes in Germany up 380% in 2016, and up 245% in France (see Figure 4).

Student housing REITs have continued to perform well. Between January 2016 and August 2017, the major student housing REITs of the UK and US outperformed their all- REIT benchmarks by 10.6% and 4.4% respectively.

FIGURE 1Global investment in to student housing (annual total)

Source: Savills World Research using RCA

Global investors seek scale

Global cross border investment into student housing stood at 37% of all investment, a higher sector proportion than for offices (34%) and retail (29%). Major players invested across multiple countries in order to achieve scale Singapore’s GIC was the largest single investor in 2016/17, and active in two of the biggest deals globally. It now has interests in the US, UK, Germany and Australia.

Recognising the sector’s secure, income generating qualities, it is no coincidence that today’s largest investors are sovereign wealth and pension funds. Canada Pension Plan Investment Board (CPP IB), was the second largest global investor in 2016/17. Another major UK investment from CPP IB was the $580m purchase of the Union State Portfolio in April 2017.

Singaporean real estate investor Mapletree was the third biggest investor in the period. Large portfolio purchases in North America and the UK instantly made it one of the biggest global players in the sector.

Pioneer owner / operators are selling assets to older, more diverse and established entities. First to take over have been the sovereign wealth funds and private investors with a bigger appetite for the ‘alternatives’ and niche sectors. Now the funds and an increasing number of institutions, the pension funds and insurance companies are participating in the sector.

We expect this to continue as student housing, alongside other new asset classes, takes its place in mainstream portfolios.

Europe on the rise

The US and UK are the most mature student housing markets, and continue to dominate global investment deals. But PBSA investment in Germany, the Netherlands and France has seen rapid expansion in recent years and global players seek new opportunities.

FIGURE 4Rapid expansion in European markets

Source: Savills World Research (including funding and development)

Yields

The US market stands out as particularly high-yielding for such a mature market. We expect yields to move in as institutional involvement increases, the sector matures and perceived risk diminishes. Although they are less developed markets, there is also potential for further downward yield shift in Australia and Spain over coming years. Whether Germany, the UK and France are fully valued at 3.75%-4.5% will depend on how much scope there is for rental growth in their main university cities. The gap between residential and student housing yields remain, although we expect it to narrow.

FIGURE 5Student Housing (SH) yields and sector comparisons

Source: Savills World Research

Investment outlook

Reflecting its popularity with income funds, student housing continues to offer significant potential as a stable, income producing asset class with counter cyclical qualities.

We expect to see more international investment into the US, by far the largest global market and one dominated by domestic investment to date.

There remains further potential for consolidation in the UK, with weak sterling bringing advantages for international investors.

We anticipate that the global cap rate in the sector will remain high as volumes shift toward a higher proportion of high-yielding new and expanding markets.

New stock developed now in Europe and Australia paves the way for institutional investment in the future. Macro conditions hide local dynamics, and investors do need to consider supply and demand at local level, as the following sections explore.

FIGURE 6Cross border highlights

Source: Savills World Research using RCA, 2016/17 (Jan 2016 to Aug 2017)